Pension Plan Overview - WMATA...Pension Subcommittee of the Finance Committee Information Item III-A.2 April 14, 2016 Pension Plan Overview Page 11 of 28

Pension Subcommittee of the

Finance Committee

Information Item III-A.2

Apr i l 14, 2016

Pension Plan Overview

Page 11 of 28

Prepared by Aon Hewitt Consulting | Retirement & Investment

WMATA Pension 101 – “What did my actuary say?” April 14, 2016

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Aon Hewitt | Consulting | Retirement & Investment Proprietary & Confidential | WMATA – Pension 101.pptx| 001.Z5.0164473 | April 2016

Agenda

Actuarial Concepts and Terminology Plan Highlights Key Factors Impacting Contributions

Pension 101

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Actuarial Concepts and Terminology

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The “Big Picture” - Ultimate Plan Cost

Net Investment Returns

(Net of investment management fees)

$ $ $

$

$ $

$

$

$ $

$ $ $ $

$

$ $

$

$

$

$ $ $

$

$

$

$ $

PENSION FUND

$ $

Benefit Payments Administrative

Expenses

Employer contributions

Employee contributions

Contributions + Investment Return = Benefits + Expenses

Assumptions and funding methods affect only the timing of costs. “Nobody ever made a benefit payment from assumed interest!”

Assets

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Actuarial Valuation Process

Member Data

Actuarial Assumptions Plan Provisions

Actuarial Cost Methods

Actuarial Valuation

Financial Data

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Present Value of Benefits (PVB) The Present Value of Projected Benefits (PVB) is the total projected liability or “promise” for all participants, assuming all assumptions are met.

Present Value Of Projected

Benefits (PVB)

Economic Assumptions (Discount rate, Salary Growth,

COLA, etc.)

Participant data (age, service, pay,

etc.)

Plan Provisions (i.e. contract terms)

Demographic Assumptions (Retirement,

Turnover, Death and Disability)

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Actuarial Cost Methods

Actuarial Accrued Liability (AAL)

Present Value of Future Normal Costs (PVNC)

PRESENT VALUE OF PROJECTED BENEFITS = AAL + PVNC

The Actuarial Cost Method is a mechanism to allocate the present value of projected benefits (PVB) to time periods (i.e. benefits related to past service vs. future service). ‒ The Present Value of Future Normal Cost (PVNC) is the portion of the present value of projected benefits (PVB) attributable to future service. ‒ The Actuarial Accrued Liability (AAL) is the portion of present value of projected benefits (PVB) attributable to past service.

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The Normal Cost is the upcoming year’s portion of the Present Value of Future Normal Cost (PVNC) and represents the cost attributable to benefits accruing during upcoming year.

. :

Normal Cost

Normal Cost

PRESENT VALUE OF FUTURE BENEFITS

Current Age Entry Age Retirement Age


Present Value of Future Normal Costs (PVNC)

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Actuarially Determined Contribution (ADEC) = Normal Cost (NC) + Amortization (i.e., payment toward Unfunded Actuarial Accrued Liability (UAAL)) Normal Cost (NC) = Cost attributable to benefits accruing during upcoming year Unfunded Actuarial Accrued Liability (UAAL) = Assets – Actuarial Accrued Liability

(AAL)

Actuarially Determined Employer Contribution

Assets ($81.9M)

Normal Cost (NC)

Unfunded Actuarial Accrued Liability

Amortization of Unfunded Actuarial Accrued Liability

Present Value of Future Normal Costs

Actuarial Value of Assets

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Plan Highlights

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Summary of Key Pension Plan Results ($ in millions) Local

689 Non

Rep/639* Transit Police (FOP)

Local 922 Local 2* Total

Valuation Date 1/1/2015 7/1/2015 1/1/2015 1/1/2015 7/1/2015 N/A

Total Headcount 14,852 1,821 737 683 445 18,538

Unfunded Actuarial Accrued Liability (UAAL)


$ 3,293 $ 526 $ 232 $ 198 $ 170 $ 4,419

Actuarial Value of Assets (AVA)

$ 2,506 $ 376 $ 177 $ 181 $ 145 $ 3,385

Unfunded AAL $ 787 $ 150 $ 55 $ 17 $ 25 $ 1,034

Funded Ratio 76.1% 71.4% 76.3% 91.4% 85.3% 76.6%

Actuarially Determined Employer Contribution (ADEC)

Net Normal Cost (offset by Expected Employee Contributions)

$ 83.1 $ 2.1 $ 8.7 $ 4.0 $ 0.7 $ 98.6

Payment to Amortize Unfunded AAL

$ 40.8 $ 17.8 N/A $ 1.6 $ 4.1 $ 64.3

Total ADEC $ 123.9 $ 19.9 $ 8.7 $ 5.6 $ 4.8 $ 162.9

As % of Payroll 16.6% 85.4% 23.8% 18.5% 53.3% N/A Page 22 of 28


Summary of Key Pension Plan Results

Local 689 Non Rep/639

Transit Police (FOP)

Local 922 Local 2 Weighted Average

Cost Method Aggregate Entry Age Normal

Aggregate

Entry Age Normal

Entry Age Normal

N/A

Asset Valuation Method 5 year smoothing

5 year smoothing

10 year smoothing

3 year smoothing

5 year smoothing

N/A

Valuation Interest Rate 7.85% 7.00% 7.50% 7.00% 7.50% 7.68%

Salary Increase 3.00% for Base Pay

Varies by years (0-

20) of service:

6.3%-3.0%

Varies by age: 6.00%

- 3.00%

4.50% Varies by years (0-20)

of service: 6.3%-3.0%

N/A

COLA 3.00% 2.50% 2.50% 4.00% 2.5% 2.94%

Mortality RP-2000 Projected to

2015 based on Scale AA

RP-2000 Fully

Generational based on Scale

AA

RP-2000 Fully

Generational based on

Scale AA

RP-2000 Fully

Generational based on Scale

AA

RP-2000 Fully

Generational based on Scale AA

N/A

*Used information from 7/1/2015 actuarial results presentation where available. Remaining information (e.g. assumptions, methods, and normal cost) based on 7/1/2014 Actuarial Report.

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Key Factors Impacting Contributions

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Key Risk Factors Impacting Contributions

Discount Rate (or Assumed Rate of Return)

Average public plan discount rate is about 7.6% according to most recent NASRA survey

WMATA’s plans average discount rate is 7.7% or about 0.1% higher than average. However, Local 689 rate is 0.25% higher.

If WMATA lowered Local 689 discount rate to the peer average, it would lower it’s funded % by about 2.5% and increase its annual cost by about $15 million

Based on Local 689’s portfolio and our capital market assumptions, we expect the plan to earn 6.8% over the next 30 years.

Mortality Table

The Society of Actuaries released a new base mortality table (RP-2014) and longevity improvement scale (MP-2014) in October 2014 for private plans. ‒ An updated longevity

improvement scale (MP-2015) was released in October 2015

Public Plans use the older mortality tables but using mortality improvement scale. The SOA is currently undergoing a study of public pension mortality and will be releasing an updated table. ‒ Local 689 is only plan

reflecting limited future mortality improvement

Asset Investment

Market volatility would impact funding contributions ‒ Partially mitigated by

use of smoothing period for investment (gains)/losses

Consider duration of fixed income securities ‒ Long duration bonds

would mitigate volatility

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Questions?

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Documents

Pension Plan Overview - WMATA...Pension Subcommittee of the Finance Committee Information Item III-A.2 April 14, 2016 Pension Plan Overview Page 11 of 28